RP bank earnings fall in third quarter as economy slows
12/08/2009 | 09:35 AM
The income of listed Philippine banks from lending operations in the third quarter tracked the slowdown in the economy despite low interest rates that should have encouraged credit activity.
Fourteen of the 17 banks listed on the Philippine Stock Exchange (PSE) reported a combined interest income of P53.4 billion in July to September, accounting for 2.9 percent of third-quarter gross domestic product (at current prices), which was firmer than their 2.8 percent share in economic output a year ago, BusinessWorld computations using PSE and government data showed.
That should give credence to the government’s claim that the economy, which grew by a disappointing 0.8 percent in the third quarter, had gotten some push from an uptick in bank lending.
But the trend in the past three quarters from January showed a diminishing share of listed banks’ interest income to economic output. They contributed 3.3 percent and 3 percent in the first quarter and second quarter, respectively.
The economy grew by 0.6 percent in the first quarter and 0.8 percent in the second.
"It could be that the economic slowdown in the third quarter of 2009 squeezed the percent share of income from listed banks," said Jose L. Vistan, research head of brokerage AB Capital Securities, Inc.
"But if you look at the banking industry as a whole, the industry grew," he pointed out.
The slowing economy could have also adversely affected consumer sentiment, said Justino B. Calaycay, Jr., an analyst at Accord Capital Equities Corp.
"The declining interest income could be because of lower realized income of banks due to higher rate of defaults. Because of the slow economic condition, many clients were not able to pay their monthly payments," he said.
"Second is the higher restructured loans, meaning clients asked for longer terms, which entail smaller monthly payments."
Data from the Bangko Sentral ng Pilipinas (BSP) showed that loan growth of universal and commercial banks has been easing to single-digits since July, with growth in September at 5.9 percent.
The central bank has cut its key policy rates to record lows this year to kick up lending that was hoped to shore up the economy.
"The easing cycle helped the banking industry to cope with a difficult economic condition. They [monetary authorities] eased monetary policy because they want to spur economic growth and to jumpstart that, banks have been lowering rates relatively," said Sterling Bank of Asia’s senior vice president William C. Whang.
The yet-to-perk-up credit activity, however, raised questions on the financial sector being a reliable driving force of the economy and whether an expansionary monetary stance would be enough to do that.
"The financial sector only covers 6 percent of the total economy. Truly the increase they showed helped but just in a small way,"said University of the Philippines economist Benjamin E. Diokno.
"I think that this (loans helping the economy) may not be sustainable... Yes, it may help increase consumption for a while but the consumers still need to pay for the loan in the future," said Cid L. Terosa, senior economist of the University of Asia and the Pacific (UA&P).
"I don’t believe that growth based on the increase in loans by financial institutions is sustainable," he added.
Loans should translate into long-term investment if they are to have a significant economic impact, Terosa pointed out.
Even if these loans are allocated to loans for capital investments, their impact may not be as strong and direct as the effect of growth on consumption and government spending, he said.
"If these loans are productively used, however, and are transformed into viable investment spending the impact would be more long-term," he added. — Daniel Anne B. Nepomuceno, BusinessWorld
Fourteen of the 17 banks listed on the Philippine Stock Exchange (PSE) reported a combined interest income of P53.4 billion in July to September, accounting for 2.9 percent of third-quarter gross domestic product (at current prices), which was firmer than their 2.8 percent share in economic output a year ago, BusinessWorld computations using PSE and government data showed.
That should give credence to the government’s claim that the economy, which grew by a disappointing 0.8 percent in the third quarter, had gotten some push from an uptick in bank lending.
But the trend in the past three quarters from January showed a diminishing share of listed banks’ interest income to economic output. They contributed 3.3 percent and 3 percent in the first quarter and second quarter, respectively.
The economy grew by 0.6 percent in the first quarter and 0.8 percent in the second.
"It could be that the economic slowdown in the third quarter of 2009 squeezed the percent share of income from listed banks," said Jose L. Vistan, research head of brokerage AB Capital Securities, Inc.
"But if you look at the banking industry as a whole, the industry grew," he pointed out.
The slowing economy could have also adversely affected consumer sentiment, said Justino B. Calaycay, Jr., an analyst at Accord Capital Equities Corp.
"The declining interest income could be because of lower realized income of banks due to higher rate of defaults. Because of the slow economic condition, many clients were not able to pay their monthly payments," he said.
"Second is the higher restructured loans, meaning clients asked for longer terms, which entail smaller monthly payments."
Data from the Bangko Sentral ng Pilipinas (BSP) showed that loan growth of universal and commercial banks has been easing to single-digits since July, with growth in September at 5.9 percent.
The central bank has cut its key policy rates to record lows this year to kick up lending that was hoped to shore up the economy.
"The easing cycle helped the banking industry to cope with a difficult economic condition. They [monetary authorities] eased monetary policy because they want to spur economic growth and to jumpstart that, banks have been lowering rates relatively," said Sterling Bank of Asia’s senior vice president William C. Whang.
The yet-to-perk-up credit activity, however, raised questions on the financial sector being a reliable driving force of the economy and whether an expansionary monetary stance would be enough to do that.
"The financial sector only covers 6 percent of the total economy. Truly the increase they showed helped but just in a small way,"said University of the Philippines economist Benjamin E. Diokno.
"I think that this (loans helping the economy) may not be sustainable... Yes, it may help increase consumption for a while but the consumers still need to pay for the loan in the future," said Cid L. Terosa, senior economist of the University of Asia and the Pacific (UA&P).
"I don’t believe that growth based on the increase in loans by financial institutions is sustainable," he added.
Loans should translate into long-term investment if they are to have a significant economic impact, Terosa pointed out.
Even if these loans are allocated to loans for capital investments, their impact may not be as strong and direct as the effect of growth on consumption and government spending, he said.
"If these loans are productively used, however, and are transformed into viable investment spending the impact would be more long-term," he added. — Daniel Anne B. Nepomuceno, BusinessWorld
